$NFLX Ichimoku and Seasonal Opportunity Before Earnings. $NFLX is a seasonal Ichimoku trade I have been trading for years. Here is the seasonality for it for the last 10 years provided www.alerttrades.com. It has a 76% probability of being bullish. Also, 23% of the price action that occurs in January so it has a high probability of moving.
In the last couple of years, it has been bullish except for last year. Seasonality are probabilities but no guarantee it will occur for sure. As a result, you want to verify with Technical ALL the time. In 2016, the charts on a weekly time from tradingview showed that the instrument was going through a bearish pull back to the support at 87.05. Earnings helped pushed price to the support.
Let’s examine what the weekly time frame looks now since earnings is almost here. This week, the breakout for the bullish strategy has occurred and there is high probability of price getting to 147.35/161.40 long term.
Earnings is Jan 18, 2017 so volatility has to be high now. Average IV is around 42 but the current IV for a lot of the option prices are around 48% (Feb). IV is showing a movement of around 14%-16% with earnings. Since the options are “expensive”, we can’t buy a call. We need an option strategy with a Sell leg to take advantage of the high prices.
Let’s examine putting on a spread. Here is the options chain for vertical spreads for the call side. The only vertical spread we can buy for a 3:1 reward/risk is the Feb 145/150.
It’s risk graph looks like the following:
The break even for this spread is 146.09 which is close to our first resistance. If price gets to our first resistances and bounces off it, we will not make any money at all. Therefore, this strategy is not good.
Due to the Greeks on the other months, we can’t do any other strategy except for a “Butterfly”. The max risk is $35/contract with an upside potential of $450/contract. If prices close at 147 at Feb expiration then we can still get a 3:1 too. We will enter this strategy and put a GTC to close order to collect $200/contract in profits to see if it fills. The key to “Butterfly” is to put the close order and see if it fills once the instrument moves.
Please note: This strategy should not be executed unless you have experience with it.
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